Note: Before you read about the ruling of cryptocurrency, we strongly recommend that you read the review of cryptocurrency published by Dr. Sami Ibrahim Al-Suwailem, Cryptocurrency: An Authentication Review, first to understand cryptocurrency's nature, its conditions and how its market operate.
Alhamdulillah, and Peace and Blessings be upon our prophet Muhammad ﷺ.
The Islamic Shariah does not appoint any particular item as a currency, rather it refers to what people have widely recognised as a form of currency. Imam Malek (may Allah have mercy on him):
Imam Malek said that if leathers are widely recognised and accepted by the people as a form of currency, then all rulings of Reba (الربا - meaning: usury) apply to it, just like gold and silver.
Imam Ibn Taheyyah (may Allah have mercy on him) said:
Some scholars stated that currencies must be issued or permitted by the state. Imam Ahmad (may Allah have mercy on him) said:
Dealing with Bitcoin, or any other cryptocurrency, is not yet a widely accepted form or exchange of value (as defined above as it is merely a medium of money transaction, not a currency that has a core value). Also, there is no official regulation body to guarantee a value for it, rather its value solely depends on trading activities. Therefore, it cannot be considered a currency with all Reba (الربا - meaning: usury) and Zakat (الزكاة - meaning: the annual 2.5% of wealth paid to charity/alms) rulings apply to it.
As for buying and selling Bitcoin, and any other cryptocurrency, the main condition for it to be permissible in Islam is that it should be free of Gharar (الغرر - meaning: is a form of deception). Trading Bitcoin is a form of gambling (the profit made by someone is the exact loss of another) which is achieved through its volatility (price fluctuations). And with the absence of a core value, there is no official regulatory body that guarantees its value for the people to rely on when dealing with it.
Therefore, it is not permissible to deal with Bitcoin, or any other cryptocurrency, as a currency as long as the conditions discussed above are still valid.
And Allah knows best, and peace and blessings be upon Prophet Muhammad and his progeny.